March 17, 1981

Seoul
— The most encouraging news so far for an oil-thirsty country was the way one Seoul newspaper described an announcement in January that Korea for the first time was to explore for oil overseas.

The Indonesian state oil company Pertamina and the Korea Development Company (Kodeco) will begin drilling off eastern Java in late 1981. They will share equally exploration and development costs, estimated at $60 million over the next two years.

It is not yet clear what Korea will eventually get out of the deal. But the Seoul government is anticipating receiving around 25 percent of any oil produced.

Korea was hurt two ways last year over oil. Its import bill increased 70 percent to $5.6 billion (almost the same as the country's balance-of-payments deficit), and serious doubts were raised about the continued reliability of supplies to a country totally dependent on imports.

Korea Oil Corporation's long-term contract with Gulf Oil was terminated last year, and the Seoul government suddenly found itself drawn into directly seeking alternative sources. Mr. Hwan shuttled back and forth between major Middle East suppliers to eventually line up enough governmental deals to meet all Korea's needs this year.

The Indonesian exploration agreement -- along with a tripling of crude oil supply from Indonesia to 15,000 barrels a day -- is part of a determined Korean effort to diversify its supply sources.

Saudi Arabia (60 percent at present) and Kuwait will continue to dominate, but there are high hopes of long-term deals with Nigeria, Mexico, and possibly Ecuador.

Korea was disappointed last year when two test wells on the continental shelf facing Japan proved dry. Test drillings in three more areas with the Japanese were planned for this year, however, so hope has not been completely abandoned.

In the long run, of course, Korea will follow the world trend away from oil and into coal and nuclear power generation.

According to Chung Sung Nack, executive vice-president of Korea Electric Company (KECO): "We are not going to build any more oil-burning plants. Following the completion of studies this year, we will begin converting existing boilers from oil to coal, and also consider switching to gas if we can get guaranteed supplies."

In fact, Korea already has a deal with Indonesia for 1.5 million tons of liquefied natural gas a year from 1985, increasing to 3 million tons in 1987. Negotiations are also in progress with Malaysia.

KECO is building four coal-fired plants, each with capacity of 500 megawatts. With this new construction, and reconstruction of existing oil-fired boilers, Mr. Chung estimates KECO's minimum coal import needs at 5 million tons a year.

The company already has signed long-term contracts for 4 million tons with Australian and Canadian mines. The remaining 1 million tons is still open and it is possible American mines could pick up the contract -- despite Korean grumblings that US transportation costs make the coal too expensive compared with other sources.

Korea's domestic coal production is about 20 million tons a year.

But, according to Choi Bung Kyu, vice-minister of energy and resources, virtually all this goes to home heating and could not be diverted to power generation. And anyway it is of low quality.

Yet with electric power demand having grown an average 19.9 percent a year over the past two decades, fuel needs continue to soar. Hence, this year 1.9 million tons of anthracite coal will be consumed in the nation's power stations, with demand projected at 8.4 million tons in 1985 and 18 million tons at the start of the next decade.

Says Mr. Choi: "We have got to start securing those needs now. Obviously, we would be interested in investing in overseas coal mine development. Joint ventures have been proposed with some American mine operators and we will be examining these in detail in the months ahead."

Korea now depends on coal for only 4.2 percent of its power generation. This is to be increased to 15.7 percent by 1991.

The other big hope, of course, is nuclear power. One unit is already in full operation and eight more are in various stages of construction, so that KECO thinks there will be no problem about meeting its target of 13 nuclear reactors producing electricity by 1991.

Westinghouse won the contracts for six of the units, but the most recent contracts -- the ninth and 10th -- went to Franatom, which managed to slash its price drastically after losing out to the Americans in the earlier bidding.

KECO has managed to secure its limited nuclear fuel needs through 1982, buying on the US spot market. Beyond that, it has long-term contracts with Australia and Canada. The Koreans are also engaged in promising uranium exploration in Paraguay and Gabon.

The US is handling fuel enrichment, apart from the two units in French hands.

Mr. Chung of KECO discounts suggestions that Korea's nuclear program faces problems. Attempts have made by US environmental groups to stir up a protest movement in Korea, but "we have been able to convince the public of the safety of our operation."

He also has no fears about the availability of sufficient trained personnel to run 13 reactors.

Waste disposal, however, is a headache. "For the time being we will store on site," says Mr. Chung. "We have storage facilities for 10 years, so that gives us breathing space to work out an effective system."

At present, he adds, Korea has given no thought to "the very sensitive issue" of domestic reprocessing of spent fuel.

The Koreans are just starting on an alternative energy program.

Energy and Resources Vice-Minister Choi says the main emphasis will be on tapping abundant geothermal resources, as well as winning p ublic acceptance of solar energy.